Danny Alexander: The Office for Budgetary Responsibility is wholly independent. Decisions of the sort that the hon. Gentleman has described are a matter for the OBR to take on its own initiative-that is what having an independent body means.

Theresa May: Of all the things that I have seen in the couple of months since I became Home Secretary, the thing that has most struck me and surprised me has been the complete unwillingness of the Labour party to recognise what much of the counter-terrorism legislation that it introduced and on occasions the misuse of that legislation have done to civil liberties in this country. It has surprised me because I hoped that, in opposition, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson) and his colleagues would have taken the opportunity to sit back and look at their records in government and wonder why in the past few years so many people, including the Conservative and Liberal Democrat parties, have been raising questions about the counter-terrorism legislation that the previous Government introduced. I am sorry that the right hon. Gentleman has not seen fit to use the time in opposition so far to undertake that exercise.
	In the counter-terrorism review, we are looking at precisely the balance that the right hon. Gentleman talks about between collective security and individual freedom. We want to ensure that we strike the right balance between collective security and individual freedom and not the wrong balance that we believe the previous Government introduced in a number of areas.
	The right hon. Gentleman asked for some statistics. I can tell him that 235 people were convicted of terrorism-related offences between 11 September 2001 and 31 December 2009, and a further 22 defendants were awaiting trial as at 31 December 2009. For the 28 terrorism-related trials completed in the 12 months to the end of last year, 93% were convicted, with just over half pleading guilty, and convictions included six life sentences. At the end of December 2009, 131 people were in prison for terrorism, extremist offences or charges relating to terrorism or extremism.
	I am certainly not making light of the threat that exists in this country. As the right hon. Gentleman acknowledged, nor did my right hon. Friend the Prime Minister when he came to the House to make his statement on detainees and the publication of guidance to our security services. We recognise the level of threat in the United Kingdom, but I say to the right hon. Gentleman and members of the Labour party that our fight against those threats is not aided by legislation that is misused or that people feel encroaches on civil liberties.
	The right hon. Gentleman asked whether I could suggest legislation in which the Labour Government had ridden roughshod over civil liberties and then said they had not done so in relation to the detention of terror suspects before charging. I have to say to him that trying to introduce 90 days of pre-charge detention was indeed riding roughshod over our civil liberties. The review will look to ensure that our counter-terrorism legislation is appropriate to the level of threat and provides our police and our security and intelligence agencies with the powers that they need to combat that threat, while ensuring that we can enjoy our ancient civil liberties.

Julian Lewis: At a meeting earlier today, the American anti-terrorist expert Dr. Marc Sageman expressed his surprise that we do not use a method that is found to be very effective in the United States and other countries at deterring people from joining terrorist movements, which is to publish in full the transcripts of the trials that are held when plots are uncovered and disrupted. That would be a very effective mechanism, and it could also lead to television re-enactments which would show that far from these people being 10 feet tall and great warriors, they are often very banal, very stupid and very deserving of our contempt.

Philip Hollobone: I beg to move,
	That leave be given to bring in a Bill to provide for the immediate repatriation of foreign nationals awarded a custodial sentence to serve detention in their country of origin; and for connected purposes.
	In moving the motion, I would like to welcome to his place the Prisons Minister, the Parliamentary Under-Secretary of State for Justice, my hon. Friend the Member for Reigate (Mr Blunt). I am also delighted to see next to him members of the Treasury team-my hon. Friends the Economic Secretary to the Treasury and the Exchequer Secretary to the Treasury-who I am sure will be thrilled to know that my Bill, if enacted in full, would save Her Majesty's Exchequer some £460 million a year, which I am sure would be a welcome contribution to reducing our nation's record deficit.
	The situation regarding foreign nationals in prison in our country is a national disgrace. There are 11,367 foreign nationals currently serving time in Britain's jails-some 13% of the prison total-and the number has almost trebled in the past 15 years, up from just 4,000 in June 1995. Two of Her Majesty's prisons are devoted entirely to housing foreign national prisoners: HMP Canterbury and HMP Bullwood Hall. Indeed, we have the privilege of having foreign national prisoners from some 160 different countries serving time at Her Majesty's pleasure. We have become, in many respects, the United Nations of crime. My Bill would save a huge amount of money for the British taxpayer and free up valuable space in our prison estate, which is basically full, but it would also enable Her Majesty's Government to rehabilitate better our own prisoners who are serving time in jail.
	Typically, foreign national prisoners spend between eight and 10 months in Britain's jails. One third have been convicted of violent or sexual offences, while one fifth have been convicted for drug crimes. Although 160 different countries are represented, 10 countries account for half the total, and five countries account for one third. The top five in the list of shame are as follows: Jamaica, with 963 prisoners; Nigeria with 752; the Republic of Ireland with 647; Vietnam with 620; and Poland with 617. Those five countries alone are contributing 3,600 prisoners.
	There has been legislation on this matter in recent years. The Repatriation of Prisoners Act 1984 enabled Her Majesty's Government to negotiate voluntary transfer agreements with countries around the world, but unsurprisingly, not many prisoners volunteered to be returned to their country of origin. In 2006, the previous Government amended the Act to enable compulsory transfer agreements to be introduced. In 2008 a system was introduced for prisoners serving more than 12 months to be automatically deported to their country of origin at the end of their sentence.
	My Bill would enable Her Majesty's Government to transfer foreign national prisoners back to secure detention in their own countries without their consent. I do not see why the British taxpayer should pay the bill for the housing and lodging of foreign nationals who have abused our trust by committing crimes so heinous that they have been jailed in this country. I believe that their own countries of origin should pick up the bill.
	Nigeria, which is second on the list, with 752 foreign nationals in our jails, is seeking to conclude a compulsory transfer agreement with the United Kingdom, and I understand that that legislation is now before the Nigerian National Assembly. Indeed, it has been in that position since 2007. I should like politely to suggest that Nigeria be encouraged to get a move on. It has not escaped my notice that, while we British taxpayers are paying £30 million for incarcerating Nigeria's foreign nationals in our jails, we are at the same time giving that country £132 million annually in development aid. Now, fair's fair-if we are going to contribute to the development of that nation, it ought to be mindful of the extra costs that we are bearing by incarcerating its prisoners in our country. Nigeria, Jamaica and other countries on the list are Commonwealth countries, so there should be no suggestion that returning people to those countries would result in their being badly treated.
	An additional protocol to the Council of Europe's convention on the transfer of sentenced persons, which Her Majesty's Government signed in November 2009, allows for the compulsory transfer of sentenced persons back to their country of origin among the 35 signatory countries, including all of the European Union. That would cover some 3,100 foreign national prisoners, or 28% of our foreign national prison population. The list of shame covered by this agreement is headed by the Republic of Ireland with 647 prisoners, Poland with 617, Romania with 357, Lithuania with 330 and France with 163.
	My message to the Under-Secretary of State for Justice, my hon. Friend the Member for Reigate, who has done an excellent job in his first few weeks as prisons Minister, is that we should gently encourage our European partners to abide by the terms of the additional protocol and ensure that facilities are in place to ensure the swift transfer of foreign national prisoners back to those countries.
	Times are hard, and we have heard from the Opposition that our country has run out of money. The bill that we face every year for the incarceration of foreign nationals in our jails is simply too high, and the time has come for the British taxpayer to say to our friends and neighbours round the world, "If you're going to send us people who behave so badly that they're found guilty of crimes serious enough for them to be sent to jail, fair's fair, you must take your citizens back to their own country and make sure that they serve time in secure detention there." That would rehabilitate them better, among their friends and family, and it would free up our prison space so that we could rehabilitate better our own nationals who have strayed away from the right path of the law. It would save us a lot of money and do the right thing. I very much hope that the message is being received loud and clear by those in authority both in our country and among our friends and neighbours abroad.
	 Question put and agreed  to .
	 Ordered ,
	That Mr Philip Hollobone, Mr David Davis, Mr Peter Bone, Mr Julian Brazier, Andrew Rosindell, Mr David Nuttall, Mr Andrew Turner, Patrick Mercer, Mike Freer, Bob Stewart, Priti Patel and Gordon Henderson present the Bill.
	Mr Philip Hollobone accordingly presented the Bill.
	 Bill read the First time; to be read  a Second time on Friday 10 June 2011 , and to be printed (Bill 54) .

Further considered in Committee (Progress reported 12 July)
	[Mr Nigel Evans  in the Chair]

Stewart Hosie: I beg to move amendment 13, in page 2, line 7, leave out subsection (1).

Nigel Evans: With this it will be convenient to discuss the following:
	Amendment 54, page 2, line 7, leave out '20' and insert '18'.
	Amendment 22, page 2, line 8, at end insert-
	'(2) Subsection (1) shall apply until 4 January 2012.'.
	Amendment 14, page 2, line 9, leave out subsection (2).
	Amendment 1, page 2, line 12, after 'made', insert
	'on or after a specified date'.
	Amendment 41, page 2, line 13, at end insert
	'unless the report referred to in subsection (6) has not been completed, in which case the date shall be 4 January 2012.'.
	Amendment 2, page 2, line 15, after 'imported', insert
	'on or after a specified date'.
	Amendment 42, page 2, line 15, at end insert
	'unless the report referred to in subsection (6) has not been completed, in which case the date shall be 4 January 2012.'.
	Amendment 3, clause 3, in page 2, line 17, at end add-
	'(6) In subsections (3) and (4) above "a specified date" means a date specified by the Treasury by an order made by Statutory Instrument, which may not be made until-
	(a) an impact assessment of the effect of this section and Schedule 2 has been laid before the House of Commons; and
	(b) a draft of the order has been laid before, and approved by resolution of, the House of Commons.'.
	Amendment 23, page 2, line 17, at end add-
	'(6) The rate of value added tax shall remain at 17.5 per cent. on children's prams, cots, toys, high chairs, babies bottles, nappies, children's sanitary products and teething-related goods.'.
	Amendment 25, page 2, line 17, at end add-
	'(6) The Chancellor of the Exchequer must, prior to the introduction of the change to the rate of VAT specified in subsection (1) above on the date specified in subsections (3) and (4) above, compile and lay before the House of Commons a report containing an assessment of the impact of the increase in VAT on-
	(a) the disposable income of low-income households,
	(b) people with physical and mental disabilities,
	(c) the competiveness of the UK Retail Sector,
	(d) the competiveness of the UK construction industry,
	(e) the NHS, and
	(f) local government.'.
	Amendment 40, page 2, line 17, at end add-
	'(6) Before 4 January 2011 the Treasury shall lay a report before the House of Commons on the scope of the standard rate of VAT.'.
	Amendment 43, page 2, line 17, at end add-
	'(6) The Treasury shall prepare a report into the impact of the rise provided for by subsection (1) on-
	(a) pensioners;
	(b) children and child poverty;
	(c) inequality;
	(d) the bottom quintile of households by income;
	(e) charities, and
	(f) the informal economy,
	in the United Kingdom and lay it before the House of Commons.'.
	Amendment 46, page 2, line 17, at end add-
	'(6) The Treasury shall prepare a report into the impact of the increase in VAT rate provided for by subsection (1) on pensioners in the United Kingdom in 2010-11 and 2011-12; this report shall be prepared and laid before the House of Commons prior to the Commons Committee stage of any further Finance Bill that is brought before the House in the current Parliamentary session and shall propose ways in which the pensioner population of the United Kingdom can be assisted in meeting the additional costs imposed on them by the rise provided for in subsection (1).'.
	Amendment 55, page 2, line 17, at end add-
	'(6) Subsection (1) shall apply until 4 January 2013.'.
	Clause stand part.
	Schedule 2 stand part.

Angus MacNeil: Given the Liberal Democrats' arguments on deficits and structural deficits, and the subjectivity of those arguments, should they and their Conservative allies and friends not have a sunset clause for this VAT rise to ensure that when the deficit reaches a certain point they will hit reverse gear and think of pensioners and the low-paid, rather than of expediency in government?

Stewart Hosie: I would have been absolutely delighted to be in government and to have a progressive tax system that helped ordinary people and stimulated business growth, as we in my party have done in the Scottish Government. We have reduced business rates to grow local businesses, and frozen the council tax for three full years to help local people. However, we are now faced with the consequences of a coalition agreement that will see the VAT rise hit the poorest the hardest. On balance, the record of my party in government in Scotland will be viewed far more favourably than the VAT increase introduced by the Liberals and the Tories in this Westminster coalition. However, I am being distracted from my amendment; that is the Liberals' fault, as well.
	I was making the serious point that this an additional £150 million bombshell tax on charities, but there is also the additional cost to the public sector generally. The health service alone in Scotland will now have to find £26 million from its budget in order to pay the VAT bill. At a time when all of us, presumably, want to protect the front line-the prison service and the police in England, Wales and Northern Ireland; the teachers; the nurses; the social workers: indeed, every public body and all the people who do the work-this Government, backed by the Liberals, are forcing those public bodies to pay that hard-earned cash to the Treasury instead of ensuring continued investment in and payment to the front line. That is a ridiculous position to find ourselves in.
	In economic terms, this makes no sense. The British Retail Consortium described the rise as "disappointing". I said on Second Reading that that was something of an understatement. It went on to say:
	"We didn't want a VAT increase. It'll hit jobs."
	Simon Newark of UHY Hacker Young warned that the rise could push up prices on the high street by about 2%, which could have a significant impact on inflation. He went on to warn:
	"Higher inflation could trigger interest rises, risking the spectre of the double dip recession."
	Others were warning that the rise in VAT will exacerbate cash-flow problems.
	I said at the beginning of my remarks that the poorest will be hit three times harder than the richest. Some estimates have suggested that those earning under £14,200 will be hit six times harder than those at the top of the pay scale, earning more than £49,700. I concede that that estimate may be at the far end of the scale, but the point is that this VAT rise is going to hit those on low and modest earnings, and without earnings, extremely hard.
	Is it not the case that this VAT rise also increases the incentive for people to operate in the shadow or cash economy, where income tax and national insurance contributions are not paid, and exacerbates the yield issue for the Government?

Stewart Hosie: It is actually worse than that. Goods of all sorts tend to be dearer in rural areas to begin with, the VAT is added to that price and so more VAT, in cash terms, is paid on the purchase, or the sale, of the same item in a rural part of the country than in a competitive city centre.
	Then we must consider the fuel situation, which is extraordinary because VAT is paid on top of duty. This Government are keeping the three duty rises of the previous Government, and each duty rise will also have additional VAT at 20% on top flowing its way to the Exchequer. My hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil), like all my hon. Friends, is right to say that in remote and rural areas, in particular, this is an umpteen-level whammy, as the VAT goes on top of every single duty rise for every single good delivered to those areas.
	Of course, the effects do not just stop and start at rural areas, because bits of the local economy are also affected, particularly small service companies. Retailers and restaurants may find themselves between a rock and a hard place. As Stephen Law, president of the insolvency trade group R3, said, those businesses will
	"struggle to work out what will damage their bottom line more: taking on the extra tax burden or suffering an inevitable fall in consumer demand if they pass the tax on."
	When we think about the consequences and how that can damage what may already be fragile companies on local high streets, we can begin to see the very real damage that may be caused.
	We can see that damage before we consider the law of unintended consequences. I thought that  The Scotsman on 4 July was right in its article headed "Cowboys builders set to return as VAT rises". It stated:
	"Stuart Brodie, head of tax at Grant Thornton in Scotland, said not only would the VAT increase fuel the black market but past trends showed it would also reduce the government's tax take."
	The article quoted him as saying:
	"You generally see that if you cut the tax rate, you up the tax intake as it's less attractive for businesses to avoid it and vice versa".
	According to the article, he added that
	"the VAT rise would act as a disincentive for many legitimate builders at the lower end of the market to grow their businesses as it would be more cost effective for them to do less work and keep turnover below the £68,000 VAT registration threshold."
	He also said:
	"You are putting an automatic collar on their ability to grow their business".
	This is happening at a time when we need those small businesses. In Scotland 90% of people are employed by the smallest businesses. We need everyone in the small and medium-sized enterprises sector to be growing, taking on, employing and paying all the tax they possibly can.

Liam Byrne: For the hon. Gentleman to begin quoting private correspondence, even that written in bad taste and in jest, is particularly inappropriate in a Finance Bill debate on a £19 billion tax increase of which his constituents will pay part. If that is the strength of his contribution this afternoon, I think that they will be disappointed. I was about to say that the Deputy Prime Minister was among those who gave the public the impression that there was not a plan to increase VAT. He said on 8 April:
	"Our plans do not require a rise in VAT. The Tory plans do. Their tax promises on marriage and jobs may sound appealing."-
	appealing to him, I think he meant.
	"But they come with a secret VAT bombshell close behind."
	There was, of course, a nice poster to go with the quotation, which we talked about last week. I was one of those who were lucky enough to get a copy of the poster before the Deputy Prime Minister took it off his website last Tuesday night-it is good to note that at least they were not all in the bar. The poster was clear. It said:
	"Tory VAT bombshell. You'd pay £389 more a year in VAT under the Conservatives."
	The Deputy Prime Minister's assertion, however, that no rise in VAT was needed in the Liberal Democrat plans found its echo in words from the right hon. Member for Tatton (Mr Osborne), who is at ECOFIN today. He told  The Times on 10 April:
	"We have no plans to increase VAT."

Andrew George: I am grateful to the shadow Chief Secretary for giving way. It would have been nice if the Labour Government had undertaken impact studies of abolishing the 10p tax rate, for example. I understand that the Labour party has now learned to love Baron Mandelson, whose memoirs are now published for all to see. It is clear from them that the shadow Chancellor had been contemplating increasing VAT to 18 or 19% in advance of the general election. Baron Mandelson acknowledges that this was a hard choice, one that he was impressed by. In those circumstances, does the shadow Chief Secretary accept that sometimes it is better to leave the hard choices until after an election, and perhaps that was in the back of the minds of the now Prime Minister and Chancellor?

Liam Byrne: I am now tempted to keep the hon. Gentleman in suspense for a little longer. I hope he will bear with me.
	I was making the point that if the Committee does not agree to support the amendments and does not agree that we should make reports and study the impact, it will be tantamount to our saying that we do not care how VAT will hit different groups, but I know that there are people in the Government, and Members in the House, who do care. They worry about the impact of VAT because they, like Labour Members, came into politics to try to make this country a fairer and more prosperous place to live in. The reports we are asking for are all the more urgent because evidence has emerged over the last couple of weeks from the Government and elsewhere that VAT increases are both unfair and regressive.
	There was the now infamous graph on page 66 of the Red Book, to which the Economic Secretary referred in questions earlier this afternoon. The graph purported to show that the Budget was fine-the very model of progressive politics. Only after interrogation did it emerge that the picture looked half decent only because it incorporated Labour measures and did not include the full extent of the welfare cuts that await the country in years to come; indeed, just a third of those welfare cuts were put into the picture, so unsurprisingly, it was flattering.
	The best arguments for the reports we are asking for were not made by the Economic Secretary or by me, but by the Prime Minister and the Deputy Prime Minister. During the election the Prime Minister said that he could "absolutely promise" that VAT is regressive. He said that
	"you could try, as you say, put it on VAT, sales tax, but again if you look at the effect of sales tax, it's very regressive, it hits the poorest the hardest. It does, I absolutely promise you."
	That is what the Prime Minister said at one of his popular Cameron-direct events in Exeter in May.
	The Deputy Prime Minister echoed that view, and also said that raising VAT would be regressive and penalise the poor. On "Today" on 7 April he said,
	"you clearly cannot write Budgets in the future"-
	echoing the point made by the hon. Member for East Dunbartonshire (Jo Swinson)-
	"but what you can say is that the only way you can avoid a huge hike in VAT, which let's remember is a regressive tax, is by making sure that you take some of the decisions that we've done".
	I am not quite sure what those decisions were.
	And, of course, there are the comments by the hon. Member for Bermondsey and Old Southwark (Simon Hughes), who is not with us this afternoon but has been very eloquent on this subject in public and in private. He told "The Daily Politics" on 15 June:
	"I hope we don't have a VAT increase because it is the most regressive form of tax, it penalises the poor at the same rate as the rich".
	The views expressed by the Prime Minister, the Deputy Prime Minister and the deputy leader of the Liberal Democrats have all echoed the opinion that has been offered to us in the House by a range of experts. The National Institute of Economic and Social Research said in its report of 21 June that VAT rises do more harm than other tax rises would. The Institute for Fiscal Studies said that a VAT rise will have a bigger impact on those with least money. I think it said that the poorest 10% of households would lose twice as much as a percentage of their income as the richest 10%. Even the Treasury's own figures, released in answer to a parliamentary question earlier in the year, show that the poorest households are affected three times as much as the richest by changes in VAT.
	So the leadership of the new Government was very clear about the impact of VAT rises, and given this silence during the election and the risks of the proposed clause 3, I think the House needs to know what the truth really is, and we need to know what measures we should be demanding on behalf of our constituents in future Finance Bills to soften the blow.
	Amendment 46 seeks to focus this debate on one group of people in particular, but before I address that I give way.

Liam Byrne: Again, my right hon. Friend is absolutely right. One of reasons why we have always approached VAT in the manner that she has described is that we know that, as a flat tax, it is regressive.

Mark Durkan: Does the shadow Chief Secretary recall that, on the day of the Budget, the Government also published their paper, "Tax policy making: a new approach", which said at paragraph 3.10:
	"There is a common consensus that Parliament should have a stronger and more effective role in scrutinising tax legislation."
	At paragraph 3.13, it said that the Government
	"will introduce a tailored Tax Impact Assessment, in place of the current regulatory Impact Assessment used elsewhere in government."
	At paragraph 3.17, it said:
	"the Government will consider greater use of sunset clauses or a trigger for an evaluation in legislation."
	On that basis, should the Government not accept a number of amendments that the right hon. Gentleman is speaking to? I will certainly support amendment 13, although he may want to keep his counsel on that. For consistency's sake, should the Government not accept some of these amendments if the policy statement that they issued on the day of the Budget is to mean anything?

Liam Byrne: I think that once local authorities are confronted with 25 to 40% budget cuts later this year and we face, as Age UK has warned, the possible collapse of the social care system, we will see whether the freeze in council tax is truly delivered.
	Even towards the end of this Parliament, the hits to pensioners will just keep coming. The Library assesses that by 2013, pensioners could face cuts to disability living allowance benefits totalling an extraordinary £350 million a year. That is alongside cuts to housing benefit and the lower uprating of public service pensions and other benefits, which are now also linked to the lower-rising CPI rather than RPI. I accept that reforms to DLA are not yet clear, but we have to accept that Britain's pensioners face a new risk that has not yet been explained to this House. One million people of pension age are on DLA-they represent 34% of DLA recipients of all ages-so it is a risk that we in this House should demand we understand before changes are made.

Liam Byrne: Precisely. That is the point that Age UK made in its response to the Budget. It issued a stark warning saying that thousands of older people's lives would be at risk from even a 25% cut in local authority budgets; now we are warned by the Chief Secretary, with a casual disregard for the seriousness of the situation, that there could be cuts of 40%.
	Looking around here this afternoon, I can see many right hon. and hon. Members who came into politics to champion the cause of fairness and who work extremely hard on behalf of pensioners in this country and in their own communities. I very much respect the campaign work that has been conducted by Members in all parts of the House, not just those from my own party. It is a cause that has been championed, in particular, by those on the Lib Dem Benches.
	I have not presented to the House any definitive statement on how pensioners will be hit by VAT. I have not conducted some kind of distributional impact analysis using a Treasury dynamic model of the interrelationship between the basic state pension and the pension credit uprating, but I think the Government should. If they are relaxed about the matter and truly believe that they have compensated pensioners fully for the rise in prices for which they are legislating, they should put the matter beyond doubt. They should show the House and the public beyond that the very people to whom we owe so much are protected from a measure that they did not vote for and that threatens the standard of life that they worked so hard and long to secure.
	The final amendments that I should like to speak to are amendments 40 and 44, which are probing amendments. We want to give the Government the opportunity this afternoon to put on record their intention to rule out the removal of zero-rating VAT status on any further items. Amendment 40 would require the Treasury to lay a report on the scope of the standard rate-

Christopher Leslie: I welcome many of the comments made by the hon. Member for St Ives (Andrew George) in speaking to his amendment 55. As he pointed out, it is not dissimilar to my amendment 22, which also suggests a sunset clause, albeit in this case for one year-essentially mirroring the fact that the previous Administration reduced VAT for the period of the economic downturn as a means of stimulating the economy for that 12-month period. It seemed a reasonable proposition to do the same now.
	There are so many issues covered in this group of amendments, so I hope hon. Members will look carefully at all of them. Before I move on to discuss some of them, I want to deal with amendment 22. The hon. Member for St Ives is right to highlight the fact that the coalition agreement referred to the greater use of sunset clauses in legislation, which would be a healthy thing particularly given the sheer impact such a massive financial change will have on the entire country. We are talking about £12 billion of tax taken from all our constituents, so at the very least we should have the opportunity to have the measure reviewed periodically by the Minister. I think that it would be appropriate to do so after a year, but after two years would be perfectly reasonable. For me, ratcheting up to a permanent 20% VAT rate is entirely unacceptable.

Anne McGuire: Does my hon. Friend also agree that the mechanics of raising and reducing value added tax is relatively straightforward, making a sunset clause quite easy to apply. It does not have the complications of other elements of the taxation system. Frankly, the previous Labour Government proved that it was possible to adjust VAT by lowering it and then increasing it at a future date. The mechanics of collection are more straightforward than for other taxes.

Charlie Elphicke: May I thank my hon. Friend for the efforts that he and his colleagues have made to increase the personal allowance, as that is an extremely important contribution? People in Dover and Deal who I represent earn on average £17,000 or £18,000 a year. Does my hon. Friend agree that the effect of the VAT rise is ameliorated for the least well-off, such as those people, by the exemptions for food and children's clothes?

Stephen Williams: I am not sure whether the hon. Gentleman was here earlier, when the shadow Chief Secretary raised the issue of what was said during the general election. All three parties perhaps ducked the question of whether they would go ahead with an increase in VAT after the election. We all know that when we stand in an election, we do not necessarily want to put unpalatable truths to the electorate. All three Front-Bench spokespersons-the right hon. Member for Edinburgh South West (Mr Darling)-the former Chancellor-the current Chancellor, and my right hon. Friend the Member for Twickenham (Vince Cable), who is now the Secretary of State for Business, Innovation and Skills-said that VAT increases could not be ruled out. Now, of course, we have the revelation that there was a lively debate within the then Labour Cabinet as to whether a VAT increase should be ruled out.

Stephen McCabe: The hon. Gentleman said earlier that parties ducked the issue during the election campaign. Presumably, when the Liberal Democrats said,
	"You'd pay £389 more a year in VAT under the Conservatives",
	that was an explicit warning that the hon. Gentleman believed, and which formed part of an election platform. The question is: when did he stop believing that?

Stephen Williams: With respect, the hon. Gentleman has only just come into the Chamber, and I think I answered that point in responding to the hon. Member for South Antrim (Dr McCrea).
	I turn now to the amendments tabled by Opposition Front Benchers. The shadow Chief Secretary said that they were necessary in order to understand the impact of what is proposed, and to provide some clarity. I should point out that VAT has been part of our fiscal furniture since 1973. Labour had 13 years in government to understand the scope and impact of different rates of VAT, and we now know from revelations that have now been made that the Labour Government contemplated different rates of VAT, and whether to increase it. Of course, when they were in office they reduced VAT and then put it back up again, so surely they already have a pretty good understanding-perhaps a better understanding than new Ministers-of the scope of VAT.

Stephen Williams: That intervention, and the right hon. Gentleman's amendment, would have rather more moral force behind them if that had been his party's practice when it was in office. I well remember the Budget of 2006 or perhaps 2007, when the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor, doubled the income tax rate paid by the poorest in society from 10% to 20%. I was among those Liberal Democrats who vigorously pointed that out, and our then leader, my right hon. and learned Friend the Member for North East Fife (Sir Menzies Campbell), was the first Member to point out that the tax charge would fall very heavily on the poorest in society. I remember the whooping from Labour Members because that measure was being put in place to fund a tax cut for the well-off. I remember them cheering the cut in capital gains tax-now, of course, they say they are against it-which was being paid for by the poorest in society. This Government-this Liberal Democrat-Conservative coalition-are protecting the lowest-paid in society and taking them out of income tax, rather than increasing the rate they pay.
	Amendment 40, tabled by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), certainly has some merits in terms of looking at the scope of VAT. When I was in opposition I often made a plea, as did colleagues, for a reduced rate of VAT on certain goods and services, such as contraceptives. There was also the important issue of the construction industry and whether it was right that VAT be charged in full on the repair and maintenance of housing stock-most of our housing stock is old-yet be zero-rated on the construction of new dwellings. So we have had these debates before, and it would be a useful exercise in its own right to examine the scope of VAT rates-but not as a delaying tactic against tackling the deficit now.
	As I have said in response to many interventions, the Budget is a balance between what we do on expenditure and taxes, and where we choose those taxes to bite and fall. This Budget, put together by a coalition, by a new mode of politics, has struck that balance fairly. Some of the decisions within the Budget would be unpalatable on their own, but they are not being taken on their own. The VAT increase is not a measure in isolation, but one we must contemplate in the context of the rest of the Budget. That is why my colleagues and I will resist these amendments if they are pressed to a vote.

Rachel Reeves: That is okay, Mr Hancock; people often cannot tell us apart.
	I rise to support amendments 25 and 43. The impact that the VAT increases in the Bill will have on the most vulnerable in our society-those who are least responsible for the global financial crisis-has been ignored and avoided by the Government, and I wholeheartedly agree that there should be a full analysis of and subsequent report on the extent to which the increase will affect low-income households in particular.
	The Government's plans to raise VAT from 17.5 to 20% are highly regressive and entirely unfair. We know that the poorest fifth of Britons pay twice as much of their disposable income in VAT-at 12.1%-as the richest, who pay just 5.9%. Independent estimates from the Institute for Fiscal Studies show that because of this Budget, by 2014-15, the incomes of the bottom 10% of the population will fall by 2.6%, which is equivalent to £5 a week. Given that those in the bottom 10% of income distribution earn on average £190 a week and already struggle to make ends meet, that £5 a week reduction in their incomes will inevitably hit families and pensioners, plunging more of them into poverty. In contrast, those who are fortunate enough to be in the top 10% of income distribution will experience a mere 0.7% fall in their weekly incomes. As their average income is about £1,600 a week, I suspect that a reduction of £11 will be somewhat more manageable to them than the reduction in weekly income will be to those in the poorest decile of income distribution.
	I know that I need not spell all this out to the Government, because just a year ago, the Prime Minister said that VAT changes would hit "the poorest hardest", and it is no secret that the Deputy Prime Minister is well aware of just how regressive VAT changes can be. A few months ago, he described what the Government are planning now as a "VAT bombshell". The Government had a choice about how to reduce the Budget deficit and they chose a package of measures that included the VAT rise, which will make it even harder for low-income families to keep their heads above water.
	Let me remind the Government that they did have a choice. There is another way of achieving a reduction in the Budget deficit without threatening economic growth and without the unfairness of the most vulnerable in society being hit the hardest. In March, the then Chancellor of the Exchequer introduced a Budget that included £19 billion-worth of tax increases and £38 billion-worth of spending cuts. With those tax increases, those in the bottom 10% of income distribution experienced not the 2.6% reduction in their incomes that will be the effect of this Government's Budget, but a 0% reduction. In contrast, those in the top 10% experienced not a 0.7% reduction in their incomes, as they will under this Budget, but a 6.8% reduction. Instead of following the choices taken by the previous Labour Government, this Government have chosen measures that will hit the poorest in society the hardest.

Jon Trickett: Of course, and I shall come to that point. During my long sojourn on the Back Bench this afternoon, I have had several visits from my hon. Friend the Member for Leeds East (Mr Mudie) who is watching me carefully so I shall try to be as brief as I can.
	Several Lib Dem coalition partners made the case that it was now possible to reverse their position. It was said that the package as a whole was fair. It was said that the measures would cut the deficit and that the private sector should be allowed to breathe and grow. Each of those arguments is incorrect.

Andrew George: With his characteristic Yorkshire approach, the hon. Gentleman says that politicians should do as they say and say as they do. On that basis, will he be encouraging the shadow Chancellor to be honest with the House, and with him, and say that he made proposals to raise VAT to 18 or 19%, not just once but twice? That was his favoured remedy for the difficulties the country faced over the last year.

Jon Trickett: I shall answer that point specifically because I believe in being honest. For the last two years I worked in No. 10 and I can say that all kinds of options were reviewed, but at the end of the day the Government took the collective view that it would not be right to raise VAT. That was the decision they made. The then Chancellor said in the House, when he was making last year's pre-Budget report, that he had looked at the VAT option and rejected it. I remind the House that no Labour Government have ever increased VAT. We stand on our record. The reason was given by my hon. Friend the Member for Liverpool, Walton who pointed out how regressive VAT is.

Jon Trickett: I follow my hon. Friend quite a lot of the way, but we have to be careful about suggesting that the Secretary of State knew something was untrue. However, he appeared to say in that interview that he had misled the electorate and that it was perfectly okay for the Lib Dems to do so because after the election a new world would be entered into.
	As has been mentioned several times, the Library confirms how regressive-that is, unfair-VAT is. How can the Secretary of State argue in this place and elsewhere that he decided to vote for the Budget as a package because it introduced fairness when the House of Commons Library shows that all serious economists accept that VAT is a regressive tax? It falls twice as heavily on the poorest deciles as on the richest. I wanted to speak briefly about the situation for students, but given the time I simply note the fact that students and others on fixed incomes, such as pensioners, will suffer greatly as a result of the VAT increases they will face.
	I have three further points. First, every increase in VAT produces an increase in inflation. If there is to be a proper impact assessment, we must look at the effect of VAT on inflation. Most economists agree that inflation will rise by about 2% as a result of the VAT rise. If the Government increase inflation by 2%, even if there was no other inflation in the economy, they will be in breach of Monetary Policy Committee guidelines. However, we know that there is already inflation in the economy.
	An increase in VAT, with the corollary that inflation will rise well above 2 %, will lead to interest rate rises, which will begin to squeeze away any recovery in the economy that we all hope is coming. The British Retail Consortium said that there will be job losses, company bankruptcies and unemployment as a direct result of the inflation caused by the VAT rise. Moreover, the fact that demand of up to £13.5 billion will be taken out of the economy as a consequence of the VAT rises will produce further unemployment problems. If the level of aggregate demand is reduced there will inevitably be unemployment. Most economists predict that between 180,000 and 220,000 jobs will probably be lost as a consequence of the VAT rise and the reduction of demand in the economy.
	Finally, this VAT rise is wholly unnecessary. It does not contribute in any way to the reduction of the deficit. As we know, the VAT hike will take £13.45 billion by its final year, 2014-15. If the measure was being used to take money out of the economy to help the deficit, one could understand it, but the same Budget hands out money in tax cuts as follows: there will be reductions in corporation tax and in small business profits tax, an increase in the employers' national insurance contribution threshold, increases in personal allowances for income tax, adjustments for basic rate and upper earnings limits and a council tax freeze. All those tax give-aways add up to £12.37 billion-almost the same amount as will be raised through the VAT rise. The truth is that the measure is not in any way about reducing the deficit; it is about tax give-aways to the Tories' friends-the richer people in our society. The VAT rise is exposed for what it is: a regressive tax, taking money from the whole economy to bolster the Tories' friends in business and the 22 millionaires who sit around the Cabinet table. No doubt many people on the wealthier side of the divide in this country are rubbing their hands in glee.

Jonathan Edwards: I am delighted to have this opportunity to speak in support of amendment 13, which was tabled by my hon. Friend the Member for Dundee East (Stewart Hosie) on behalf of the Plaid Cymru-Scottish National party group.
	Our opposition to the increase in the standard VAT rate from 17.5% to 20% from January stems from two key reasons-one social and one economic. On the social front, there is little doubt that VAT is a regressive tax. As the excellent Library paper on this specific emergency Budget proposal indicated, the poorest in society spend 18% of their disposable income on VAT, while the richest spend about 10%. For the poorest in society, VAT is more likely to hit necessary spending, but as one gets richer VAT costs tend to hit discretionary spending, and that is a very important distinction.
	The increase in VAT will also leave people on fixed incomes terribly exposed. The Budget included real-terms cuts in benefits payments, given the change from the retail prices index to the consumer prices index for the calculation of benefit increases. Only today, we saw the levels of RPI at 5% and of CPI at 3.2%. The people dependent on welfare payments therefore face an unwelcome double whammy on their incomes, affecting their purchasing power-a theme to which I shall return later in my contribution.
	There is always a lag between the human cost of a recession and the end of an economic downturn, so placing further pressure on the very people who are the true victims of the banking crisis by hitting their disposable income seems callous. Indeed, the VAT increase could actually deepen the human cost of the recession as social problems such as personal debt increase. For those of us on the left of the political spectrum, the steep VAT increase in the Bill, and its disproportionate effect on the poorest in society, contrasts with the treatment of the banking and economic elite, who have had a far easier ride in the emergency Budget. Social justice would demand that those responsible for the economic recession-with their irresponsible behaviour-and the subsequent budget deficit, which fixates the new UK Government, should pay more than their fair share. Although the VAT increase will raise £13.5 billion, the bankers will be subject to a feeble banking levy of £2 billion per annum when it reaches its full force-with its effect wiped out by the changes to corporation tax.
	I deal now with the economic argument against the VAT increase in the Bill. VAT is essentially a tax on consumption. Considering that economic growth over the past decade was largely driven by consumer spending, resulting personal debt levels in the UK rocketing to the equivalent of 100% of gross value added, at £1.4 trillion, there is a medium to long-term economic case for addressing that unsustainable situation by reducing the dependence on retail spending in the economy and promoting production and manufacturing. Indeed, debt charities such as Citizens Advice report that the debt problems they deal with continue to increase as the human cost of the recession feeds into the system.
	My preference would be to change the banking code and make it more difficult for lenders to seduce consumers into debts that they cannot service, rather than directly reducing the purchasing powers of individuals via the use of VAT. However, the major issue faced by the economy is a lack of demand. Growth in consumer spending will be the key if the UK Government are to reach the economic growth forecasts they have set in order to achieve their fiscal consolidation targets. The eminent economist David Blanchflower has argued that the Budget's VAT proposals will stymie the consumer-led growth on which it depends. The increase will also hit small businesses, which are the backbone of the economy in constituencies such as mine.
	Importantly, the increase in VAT will also hit the public sector at a time when UK Government Departments are being asked to make swingeing cuts to their budgets. I should be very interested to learn whether the Treasury has calculated the effect of the VAT increase on the budgets of the devolved Administrations, and whether any consideration of the VAT increase has been made, given the stringent financial situation that the devolved Governments now face.
	Furthermore,  T he Guardian estimated over the weekend that charities could face additional costs of £150 million pounds per annum as a result of the VAT increase. Considering that they are the very bodies that will bear the brunt of dealing with the human cost of the economic downturn, I must note that slapping an extra bill on the activities of those vital life-support organisations is a very worrying indirect consequence of the proposal. For those reasons I urge the Committee to support amendment 13 when we vote later.

David Gauke: Thank you, Mr Hancock.
	Of course, we are not alone in reaching the conclusion that the right step is to raise VAT. With exquisite timing, we saw today the serialisation of Lord Mandelson's memoirs, in which he noted that the previous Chancellor had reached the conclusion that raising VAT was the right thing to do. Apparently, he told Lord Mandelson that he was
	"minded to...raise it over time, to 18 or even 19 per cent, rather than push up national insurance charges."
	Lord Mandelson tells us that he was "impressed" by this. He says:
	"These were exactly the sort of hard choices that would enable us to regain the initiative."
	Well, they did not take the hard choices and they did not regain the initiative-but we will.
	The Budget has already had an impact on the credibility of British economic plans. As the director of the CBI has said,
	"This Budget is the UK's first important step on the long journey back to economic health."
	The Fitch rating agency said:
	"The path of deficit reduction and public debt projections set out in"
	the
	"Budget statement are materially stronger than those set out in the March 2010 Budget."
	I am afraid that I cannot accept amendments 13 and 14, tabled by the hon. Member for Dundee East (Stewart Hosie), which would stop the VAT increase from happening. I have explained that we have no option other than to take this action, and I therefore ask the hon. Gentleman to withdraw them. Similarly, amendment 22, tabled by the hon. Member for Nottingham East (Chris Leslie), and amendments 54 and 55, tabled by my hon. Friend the Member for St Ives, would undermine the basic rationale for the increase. They would not allow us to reduce the deficit as quickly as we would like. I agree with the observation made by my hon. Friend the Member for St Ives that one would have expected the shadow Chancellor to support amendment 54.
	I have a particular concern about amendments 22 and 55. One argument made for the temporary VAT cut by the previous Government was that it would shift expenditure into the relevant year, 2009, when the VAT rate was somewhat lower, and therefore accelerate the recovery. If we did the reverse of that and had a sunset clause, essentially setting out plans to increase VAT but with a promise that we would then reduce it, it would have the reverse effect. It would defer expenditure, which would damage the recovery.
	I note the point made by the hon. Member for Foyle (Mark Durkan) about the Government's views on sunset clauses. The tax policy document that we produced is very good and has been well received, but the arguments for a sunset clause in the case of a rate change are not very persuasive, particularly given the economic effects that it would have.

Mike Hancock: With this it will be convenient to discuss the following: amendment 35, in page 2, line 11, at beginning insert 'Subject to subsection (3A) below,'.
	Amendment 36, in page 2, line 13, at end insert-
	'(3A) The amendment made by subsection (1) shall not have effect in relation to any supply made on or after 4 January 2011 to a charity where such supply is made to that charity solely in relation to its charitable non-business activities.'.
	Amendment 37, in page 2, line 17, at end add-
	'(6) In this section, "charity" has the same meaning as in the Charities Acts 1993 and 2006, the Charities and Trustee Investment (Scotland) Act 2005 and the Charities Act (Northern Ireland) 2008.'.
	Amendment 56, in page 2, line 17, at end add-
	'(6) The amendment made in subsection (1) shall apply only to purchases of goods and services at a cost of £25,000 or more, with the following exemptions:
	(a) purchases made by registered charities;
	(b) renovations of property;
	(c) non-exempt fuel sold to permanent residents living at rural locations which the Chancellor shall, by order, define.'.
	Amendment 58, in page 2, line 17, at end add-
	'(6) The Treasury shall prepare a report into the impact of the rise provided for by subsection (1) on mountain rescue services in the United Kingdom and lay it before the House of Commons.'.

Andrew George: With the leave of the Committee, I would appreciate the opportunity to talk to amendment 56 as well as amendment 57, which stands in my name and those of my hon. Friends.
	Amendment 57 proposes to exempt certain groups from the impact of the proposed 2.5% rise in VAT, so that it would not apply to
	"purchases of goods or services made by registered charities ...purchases of goods or services made by public authorities,"
	or to
	"renovations of dwellings in council tax bands of F or below".
	The purpose of the amendment is to further the debate on an issue that I have been probing in both the Budget debate and in debates on the Finance Bill. In spite of the great speed at which the issues have been considered, we have had the opportunity both to review the evidence brought forward by the Treasury to support the proposed VAT increase and to discuss this with some of those affected in the sectors concerned.
	I do not intend to detain the Committee for too long, but on charities, a certain amount of work has been under way for some time. It is perhaps worth while acknowledging that Governments of both parties over the past couple of decades have looked into the problem that the charitable sector has had with irrecoverable VAT. A number of attempts have been made to address it, and although charities have not been able to secure a special VAT status, the best way in which Governments have felt that they could be compensated-in the past, at least-has been through the gift aid mechanism. It is clear from the Exchequer Secretary's answers to questions that I have asked previously about the impact of the VAT rise on charities that the Treasury does not intend to make any exemptions for them.
	The Charity Tax Group has published a paper since the Budget suggesting that an increase in VAT to 20% would cost around £150 million. Although I have not studied the analysis, I believe that that figure was arrived at on the basis of an extrapolation from 87 charities across the range of sizes. If the Government believe-and I would agree with them-that the charitable and third sector has a significant contribution to make to a number of social and economic measures to improve our society, they need to give it some consideration in the Budget.
	As for the second of the measures, I know that various attempts have been made to estimate the likely impact of the VAT rise on public authorities. I have questioned local housing associations, for example, including Penwith housing association in my constituency-a relatively small housing association, but one covering the bulk of the stock in the Penwith peninsula, which is the Land's End peninsula, to most people who understand the geography of Cornwall; that is, the bottom left-hand corner of the UK. Penwith housing association has estimated that the VAT rise will add just over £150,000 in costs to its modest activities over the year, and that will affect it, as a local housing association performing an important public function.

David Gauke: Amendments 35 to 37 aim to remove supplies to charities for non-business purposes from the scope of the VAT increase. Similarly, amendment 56 would mean that the increase would apply only to supplies costing £25,000 or more, and that it would not apply to purchases made by charities for renovations of property or of fuel sold to residents of rural locations. Amendment 57 would add supplies to public authorities to the list to which the increase will not apply and is a little more specific about the type of renovations that would be excluded from the increase.
	Both those groups of amendments would be illegal under EU law insofar as they would effectively create further reduced rates of VAT in categories that are not on the list of permitted reduced rates. They would also impose a considerable administrative burden on the businesses supplying the goods in question, as they would mean that any business supplying goods or services would have to ascertain first whether a customer is a charity and, secondly, the use to which the customer would put those goods or services. In the light of the customer's answer to those questions, the VAT rate would be either 17.5 or 20%, unless the supplies were eligible for the reduced rate or the zero rate.

David Gauke: We are looking at what we can do to simplify the gift aid system so that charities of all sizes can make use of it. Some smaller charities do well out of gift aid. We want to do all that we can to strengthen charities, but the fundamental fact is that VAT is the right tax in these circumstances to raise additional revenue. There are restrictions within the VAT system as to what we can do to protect charities from that tax, but the Government as a whole remain committed to assisting charities as much as possible.
	I should like to take the opportunity to respond to the comments made by the hon. Member for Bermondsey and Old Southwark (Simon Hughes) and my hon. Friend the Member for St Ives (Andrew George) about the tension between renovation and new build and the incentives for them. I know that the Liberal Democrats have campaigned consistently on that matter for several years. As a Government we will continue to keep it under review. They make their case well.
	I am aware that mountain rescue services have drawn the attention of a number of hon. Members to the case for exempting their vehicles from vehicle excise duty or extending their reliefs from VAT. I am sure that all of us in the House have huge respect and admiration for the work of the mountain rescue services and recognise the valuable contribution that they make to the safety of those enjoying the countryside. The case is well understood on both sides of the House, but as the Committee will no doubt be aware, mountain rescue teams, like other search and rescue charities, benefit from VAT reliefs on some but not all goods and services that they purchase. Such charities are also able to purchase free of VAT medicines, medical equipment including first aid kits, splints and stretchers, ambulances and certain vehicles designed to transport disabled people.
	The mountain rescue teams also benefit from other VAT zero rates that apply to all charities. All of those zero rates are derogations from the normal EU VAT rules and represent benefits not enjoyed by charities in other member states. The mountain rescue teams estimate that they still pay something like £200,000 in irrecoverable VAT per year. However, it is well understood that there is no scope within the framework of long-standing EU VAT law for relieving more of their purchases from VAT, which is why the previous Government did not do so, despite receiving representations on a number of occasions. It would, therefore, serve no useful purpose to produce a report on the impact of the VAT increase on the service. It is argued that there could be a refund for the VAT costs, which is a public expenditure choice that I am sure the shadow Chief Secretary-formerly the Chief Secretary-was conscious of in his previous post, and we know what happened then.

Andrew George: We have had a very good debate. It has certainly been well worth probing issues on charities, public authorities and building renovation. I particularly appreciated the contribution of the shadow Chief Secretary, which was less partisan than in the past and added much to the debate and consideration of the issues.
	I apologise to the right hon. Member for Cardiff South and Penarth (Alun Michael). During his two interventions on me I failed to acknowledge his significant contribution to the voluntary sector over many years. I should have taken the opportunity to acknowledge his sterling work for the third sector and the voluntary sector.
	The hon. Member for Wrexham (Ian Lucas) added a great deal in terms of some of the material he referred to, particularly from his constituency, but his speech was disappointingly partisan. I am rather surprised by that on the day when Lord Mandelson let the cat out of the bag on Labour's defence that they would not have introduced a VAT increase after the election. It must be rather difficult for Labour Members to swallow this evening, given all the butter that is not melting in their mouths.
	The Exchequer Secretary said that he will keep a number of issues under review, which is encouraging. I shall certainly be pressing him and Treasury Ministers to ensure that they do so for the three issues that have been raised in the debate. As I indicated earlier, I intended the amendments to be probing, as they have been, so I beg to ask leave to withdraw the amendment.
	 Amendment, by leave, withdrawn.
	 Amendment proposed: 35, in clause 3, page 2, line 11, at beginning insert 'Subject to subsection (3A) below,'.- (Mr Byrne.)

Question accordingly negatived.
	 Amendment proposed: 41, in clause 3, in page 2, line 13, at end insert
	'unless the report referred to in subsection (6) has not been completed, in which case the date shall be 4 January 2012.'.-  (Mr Byrne.)
	 Question put, That the amendment be made.
	 The Committee divided: Ayes 241, Noes 321.

Owen Smith: In amendments 26 and 27, I seek to draw the Committee's attention to another of what I view as the deeply regressive and painful effects of clause 3-the VAT clause-on some of the most vulnerable in our society, in this instance disabled people. Government Members might be under the impression that disabled people are exempt from the effects of VAT-I have heard that said in other debates-but I hope to demonstrate that this is not the case and that they, like many of the most vulnerable in our society, will be impacted negatively by clause 3 and the Budget overall.
	Amendment 26 would require the Government to review the way in which current rate reliefs on items needed by disabled people are applied and to address the significant anomalies that exist in the provision of such reliefs. Amendment 27 covers items that are not wholly designed for use by disabled people, but which, although largely used by them, are not exempt from VAT and are therefore chargeable at the standard rate, and it makes the suggestion that they should be exempt from the increase to 20%.
	Many goods and services are currently exempted, yet the existing administration of the provision of the rate relief is full of anomalies in its application in this country and is applied far more differently from in many other European countries. The interpretation of what constitutes an item that is VAT deductible or VAT refundable is certainly much narrower in this country than it is in many other EU countries, and there are also anomalies, which I propose briefly to list.
	The first anomaly concerns VAT relief on works carried out to residential accommodation, where often only partial rate relief is applied. By way of example, I refer the Committee to the tribunal case of Brailsford  v. The Commissioners for Customs and Excise, which related to the change to Mrs Brailsford's house to accommodate a renal dialysis unit. There was rate relief on the unit and the installation of a toilet in her house, but the extension to the house to accommodate the required renal dialysis machine was not subject to any rate relief, so the case was rejected by the Excise and she had to pay full VAT on the unit.
	The second matter that I want to discuss is the way in which the Bill refers to items designed specifically and solely for the use of disabled people. Unfortunately, this exempts many items that people require that have not been specifically designed for use by the disabled. An example is to be found in the tribunal case between Mrs B Symonds and Customs and Excise. She had multiple sclerosis and needed to use an air purifier to make her life more bearable. It had not been specifically designed for use by disabled people, however, and was therefore not allowable under VAT relief regulations. She was therefore forced to pay the full price.
	A third important area is the difference between physical and mental disabilities. Under the current legislation, people with physical disabilities obtain VAT relief for many items, but people with mental disabilities have far less access to that relief. A classic example is patients with epilepsy, who are often not designated as handicapped. They therefore do not get rate relief on items such as the alarms and motion sensors that are vital for detecting their sometimes life-threatening epileptic episodes.
	The last item I want to talk about is transport, in which an enormous anomaly exists. People who need a wheelchair or are subject to the high rate mobility component of the disability living allowance get full rate relief. They are able to purchase adapted cars and get full VAT relief on them. However, a person who has two prosthetic arms-as does another Mrs Simmons-would find that they did not get any VAT relief whatever. They would be obliged to pay for the full adaptation of their car and would not be subject to VAT relief.

David Gauke: As we have heard, amendments 26 and 27 require both that before the rate increase takes effect the Chancellor must produce a review of existing reliefs for disabled people and that the VAT rate for standard rated goods that are intended to alleviate disability remains at 17.5%.
	I congratulate the hon. Member for Pontypridd (Owen Smith) on the manner in which he has set out his points; he obviously brings a great deal of expertise to this issue. I am also grateful to the shadow Chief Secretary, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), for amendment 47, which, as he says, requires the Government to produce a report on the impact on standard-rated goods for disabled people.
	A number of concerns have been raised about the impact of the VAT increase on disabled people. The disabled will also face the increase in the standard rate of VAT, of course. As we have heard, however, and as Members will be aware, much of what such people need in respect of their disability-including medical and surgical appliances, chair or stair lifts, adjustable beds, adaptations to bathrooms and adapted vehicles-is zero rated and will remain so.

Question accordingly agreed to.
	 Clause 3 ordered to stand part of the Bill.
	 Schedule 2 agreed to.
	 To report progress and ask leave to sit again.-  (Mr Newmark.)
	 The Deputy Speaker resumed the  Chair .
	 Progress reported; Committee to sit again tomorrow.

That the draft Parliamentary Standards Act (Staff Transfer) Order 2010, which was laid before this House on 26 May, be approved.- (Mr Newmark.)
	  Question agreed to.

David Davis: I congratulate the hon. Lady on securing an Adjournment debate on this extremely important issue. Does she agree that the first stage of water management is to ensure that we avoid building not only on flood plains-I think that that is a common view-but anywhere where it will lead to the blocking of a watercourse or an increased risk of houses flooding?

David Davis: May I just ask the Minister a practical question? If he is going to write to the hon. Lady, could he write to everyone in East Yorkshire?

Richard Benyon: I entirely agree. We discussed that at length during a recent meeting of the chairs of the forums. There is an enormous amount of work that we can do to encourage such activity. We need a bottom-up, community-led approach. Some might even describe it as a "big society" approach, while others might call it a co-operative movement. I do not care what it is called; what is important is to understand that a lot of emotion is involved in protecting people's homes. I have seen wonderful examples of communities pulling together and not only enjoying the process, but creating a flood watch scheme rather like a neighbourhood watch scheme. People keep an eye on the excellent data that the Environment Agency now publishes, which enables them to provide information, make plans and take action whenever that is required.
	It is also worth mentioning Exercise Watermark. On taking office, I was determined that the pressures on budgets should not prevent such an important exercise from taking place. Watermark will be a comprehensive test of local and national preparedness, and will no doubt yield some important lessons for us all. I am delighted that the Humber local resilience forum will be involved in the exercise, which is planned to take place next March.
	Let me end by giving the hon. Lady an assurance. Yes, we face very difficult financial circumstances, and yes, DEFRA faces the challenge of identifying the savings that are necessary to the Government's plans for dealing with the deficit. However, our absolute priority is to ensure that our flood defences remain as robust as possible. Of course I cannot guarantee that every single scheme will continue-I would not give that impression at a time when we are going through such a difficult process-but I can assure the hon. Lady that flood resilience is an absolute priority.
	This Government want to continue in the spirit of the last Government, and to ensure that the schemes that are needed are there. We want to ensure that we are using every possible means to access funds-to use local resources and, when possible, levy funding-and also to ensure that we fulfilling our responsibilities as a Government. We will not satisfy everyone, but I can assure the hon. Lady that this is an absolute priority for the Department and the Government.
	 Question put and agreed to.
	 House adjourned.